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Semiconductor-equipment maker Applied Materials (AMAT) is pulling the plug on its much-touted SunFab line of thin-film solar equipment, the company said Wednesday. The news ends some industry hopes that the tech giant would revolutionize the solar industry with its so-called "turnkey" system, which was aimed at enabling customers to easily begin producing thin-film panels using amorphous silicon.

The system, launched in 2007, attracted gigawatts worth of orders, enough to significantly boost the industry if all the planned factories had been built. And Applied has been one of the key champions of technology using amorphous silicon as the key ingredient for converting sunlight into electricity.

Now, the company says it's restructuring its renewable-energy business and redirecting its focus to other emerging fields. The move, including the decision to cut the SunFab line, is expected to cost up to 500 jobs throughout Applied's global operations.

Customers Fall By the Wayside

Applied's decision to ditch SunFab seems to confirm the growing belief in the industry that amorphous-silicon thin-film technology isn't as competitive as several other emerging and established technologies for making solar panels.

From early on, analysts were questioning whether it might take longer for customers to reach mass production -- and low costs -- using Applied's expensive equipment than it would take competing solar manufacturers. Amorphous-silicon panels from Applied's SunFab also don't produce electricity as efficiently as technologies that use silicon or other compounds, such as cadmium-telluride and copper-indium-gallium-selenide.

Then the price of conventional solar panels -- the type made by the majority of solar-panel companies, including Suntech Power (STP), Trina Solar (TSL) and SunPower (SPWR) -- fell steeply starting in 2009. The decline, caused mainly by a surplus of supply at a time when demand didn't keep pace, made it difficult for amorphous-silicon or other types of emerging technologies to win customers.

At first glance, Applied's decision would seem to be good news for its main rival in the amorphous-silicon manufacturing-equipment business, Oerlikon Solar in Switzerland. Oerlikon's customers are small companies that also are struggling to compete against larger rivals using competing technologies. The company announced the departure of its chief executive, Jeannine Sargent, last November.

On the other hand, Applied's move could be viewed as a knock against this emerging technology, and one that's likely to make amorphous-silicon appear riskier.

In a statement, Applied's CEO Mike Splinter acknowledges the competition from silicon-based technology. But he adds that the difficulty of raising the millions of dollars needed to buy factory equipment during the recession, coupled with the slower-than-expected growth in the market that serves utilities, also are to blame.

The U.S. utility market makes up a total of only 160 megawatts of solar-power generation capacity to date, according to GTM Research. That represents a fraction of the capacity of a single coal-fired power plant. But that number is expected to grow, as utilities have signed 4.5 gigawatts worth of power-purchase agreements for the future.

What's Next for AMAT

Although Applied will no longer be offerings its SunFab line, it still plans to sell some individual pieces of equipment to thin-film solar-panel makers. But the company's main focus in the solar business will be to sell equipment to make silicon wafers and cells. (A silicon solar panel is composed of a series of cells, which are made from wafers.)

The company also plans to develop equipment for light-emitting diode (LED) technology. LED lights have been around for decades and are commonly found as red indicator lights in consumer electronics, as well as in traffic signals and camping headlamps. But the technology is gaining popularity as an energy-efficient alternative to conventional lights for offices and homes.